Daily Newsletter, Tuesday, 12/9/2014

Table of Contents

Market Wrap

Volatility Jolt

by Jim Brown

The market open was better than a triple cappuccino at producing a strong surge of adrenaline for traders long the market.

Market Statistics

The carnage started overseas when China changed the collateral requirements to buy stocks. They said only AAA or AA bonds could be used as margin collateral. This was the equivalent of raising margin requirements for all Chinese investors. The Shanghai Composite declined -8% before rebounding slightly to close down -5.4% or the equivalent of -960 Dow points. This was the biggest drop since the Great Recession.

Also disrupting markets was news of an early election in Greece and the potential for the radical left Syriza party to win. The Greek ASE crashed -12.8% or the equivalent of nearly -2,000 Dow points. This was the biggest drop in 27 years. Prime Minister Antonis Samaras called for a December vote in a political gamble. If the Syriza party wins they could walk away from the $297 billion Troika bailout program that ends this year and withdraw from the EU.

The declines overseas sent our markets into a panic decline with the Dow falling -222 points at its lows and the Nasdaq down -66. About 10:30 a monster rebound began to push the Nasdaq back into positive territory with a +26 point gain. The Dow was not so fortunate but still finished well off the lows at -51. There was a rumor Mario Draghi was talking up QE for Europe again but I could not find any confirmation.

The financial uncertainty saw investors fleeing into bonds to push the yield on the ten-year down to 2.187% at its lows. As the equity markets recovered the yield rose to 2.23%.

With the drop in oil prices and the turmoil in the overseas markets there is almost no way the Fed can raise rates until late 2015 or even 2016. Every day another analyst pushes his expected rate hike date farther into the future.

On the U.S. economic front the NFIB Small Business Optimism Index rose +2 points. The headline number rose from 96.1 to 98.1 and a new cyclical high. That is the highest level since February 2007. The largest number of respondents since November 2010 at 13% expect the economy to improve over the next six months. That was a 16 point improvement over the prior month and the largest jump since April 2009. Those planning on hiring rose from 10% to 11% and those planning on capex expenditures declined only slightly from 26% to 25%.

The Job Openings and Labor Turnover Survey (JOLTS) for October showed the available jobs increased slightly from 4.7 million to 4.8 million. The openings rate rose to 3.3%. Hires declined from 5.075 million to 5.056 million. Separations increased from 4.809 million to 4.824 million. Quits declined from 2.735 million to 2.72 million. Layoffs increased from 1.653 million to 1.7 million.

While the headline number appeared to show a positive improvement the internal components above showed a negative bias. This report is ignored by the market because it is lagging data from two months ago.

The calendar for Wednesday has nothing of importance for the market. Thursday provides a little more with the Retail Sales for November as the highlight.

The big event is still the FOMC meeting for next week. We are likely to see the end of the "considerable period" language and investors will want to see how they word the replacement phrase.

Helping crush the Dow this morning was a -4% drop in Dow component Verizon. The company said it was losing customers because of increased competition and it will become more aggressive to counter promotions by rivals. This will pressure earnings in Q4. The company said customers are departing at a higher rate than they did in the prior three quarters. This higher churn rate is occurring despite a wider acceptance of 4G and upgrade from 3G phones. Last week Sprint advertised it would cut customer bills in half if they would switch from AT&T and Verizon.

Cowen & Company said "value oriented customers" appear to be shifting to T-Mobile and Sprint while Verizon and AT&T continue to battle over higher spenders. Verizon declined -$2 to account for -16 Dow points and AT&T lost $1 for -8 Dow points. Shares in all the carriers declined on worries over a 2015 price war. AT&T fell -3%, Sprint -4% and T-Mobile -5.4%.

Dow component Merck (MRK) fell -$2 after the company said it was still committed to the Cubist (CBST) acquisition despite a court ruling that will allow faster generic replacements for their best selling product. Cubicin is the largest selling product for Cubist and used to fight skin infections. However, a district judge in Delaware invalidated 4 Cubicin patents and ruled that Hospira can offer a generic replacement as early as 2016, some 2 years earlier than expected. Merck said it was considering an appeal of the decision. MRK lost -$2 or -16 Dow points.

Citigroup warned on Q4 earnings saying they would take a $3.5 billion charge for various problems. They will take a $2.7 billion charge for settling foreign exchange, LIBOR and money laundering cases. They will take another $800 million in charges for closing down some overseas operations in a restructuring effort to shrink its global footprint. The charges will basically erase any chance for a material profit in Q4. All of these issues are well known but apparently Citigroup had underestimated the legal ramifications and the extent of the potential fines. Citi also said revenue would decline about 5%. Citi shares declined slightly.

Bank of America (BAC) warned lower trading revenue in Q4 would pressure earnings. The CEO said low trading volume was only one of the revenue headwinds that were facing the bank in Q4. The COO said he had cut costs in the markets division reducing the amount of trading revenue needed to break even from $3.5 billion to $2.5 billion. Shares declined slightly on the news.

Bluebird Bio (BLUE) spiked 72% to $84 after reporting a successful trial for a gene therapy that will allow patients with anemia and low hemoglobin to skip blood transfusions. Patients in the trial were able to go 5 months or more without a transfusion. The company extracts blood stem cells from the patient and then corrects the defective gene and the blood is re-injected back into the patient where the new gene performs correctly.

Beleagered CEO Michael Jefferies, who topped several polls as the worst CEO, abruptly resigned from Abercrombie & Fitch. The resignation was immediate. Falling sales, repeated scandals, stiffer competition and changing tastes finally took its toll on Jefferies. Activist hedge funds had lobbied for him to be replaced after he said ANF goes after "attractive kids who can fit into our clothes" and alienated millions of customers. He will get $5.5 million in severance benefits. His employment contract was not up until February so odds are good sales are not doing well this quarter. Shares rallied +8% on the news.

After the bell YUM Brands (YUM) slashed its outlook for Q4 and the full year saying sales were not recovering quickly from a food scare in China. The company cut its full year profit growth to 5%, down from the 6-10% prior estimate and the "at least 20%" forecast from earlier in the year. YUM and MCD both suffered after a meat processor in China was found to be selling out of date meat. This scared away customers once again. A similar scare last year took almost a year to recover. Food safety and cleanliness in China has a very bad record. YUM shares declined -6% in afterhours.

Conn's Inc (CONN) cancelled its 2015 guidance saying credit delinquencies were a growing problem. The company also said the COO would be leaving immediately and that is not a good sign. Two months ago Conn's said it was investigating strategic alternatives including a possible sale. Conn's missed on Q3 earnings on both revenue and earnings with the credit division posting a -$33.2 million loss. Shares fell -41%.

Late in the afternoon the Federal Reserve said it was going to assess capital surcharges for banks deemed too big to fail starting in January 2016. The 8 banks named were JPM, BK, C, BAC, GS, MS, STT and WFC. The surcharges would range from 1.0% to 4.5% of risk weighted assets annually.

Here is the kicker. In the press release the Fed said net capital shortfall for the 8 banks mentioned was $21 billion. That means they have to come up with $21 billion in additional capital by the end of 2019. However, during a Fed conversation the Vice Chair, Stanley Fischer, said $22 billion of that was additional capital required by JP Morgan. That means the entire $21 billion in the press release was actually all JP Morgan and the other banks actually have a small surplus in the aggregate. Since JP Morgan makes about $20 billion a year in profits they can accumulate that additional capital by retaining earnings until the total is reached.

Crude prices were stable today above $63 where WTI may be trying to put in a bottom. However, external events suggest this level may not hold. Kuwait Petroleum said prices would remain in the $65 range for at least half a year until OPEC cuts production or economic growth rebounds. Kuwait produces about 2.9 mbpd. Prices have declined about 40% from the highs in June. Economic weakness in Europe, China and Japan has reduced demand and analysts believe there is 1.8 million barrels per day of excess production.

Iraq followed Saudi Arabia in slashing prices to Asia offering the largest discount in 11 years. Iraq set the discount to $4 per barrel below the average of the Oman and Dubai grades. Those are the benchmark grades for the Middle East. Saudi Arabia announced a $2 discount about a month ago and that accelerated the selling in crude. That is the widest Saudi discount since June 2000.

OPEC produced 30.56 mbpd in November, down about 420,000 bpd from October. The U.S. produced 9.083 mbpd last week and that is the most since January 1983.

Some technicians are targeting $53.50 for WTI prices because bear markets in oil typically retrace 50% from their highs. With the high at $107 in June a 50% drop would take it back to that level. There is also support at the $57.50 level from the monthly lows in 2007. Either level would create an entirely new round of carnage in the energy sector.

Companies are already slashing capex plans with Conoco (COP) saying they will cut capex by -20% in 2015 and they are just one of many that have already announced. Drillers in the Bakken are saying there will be no more wells if the price falls under $60. Several other shale plays with breakeven numbers well over $70 will be shutting down even faster. For the shale producers in the Bakken their oil prices are already in that mid $50 level. Bakken crude was selling for $54 late last week. They have to discount it because of transportation issues from North Dakota. Getting only $54 per barrel definitely makes most new wells unprofitable.

There have been multiple rumors of a potential emergency OPEC meeting in either January or March. The next scheduled production meeting is on June 5th. Rumors are just rumors until something is actually announced. However, if OPEC does announce an emergency meeting I would go "all in" on energy stocks. There is no reason to call an emergency meeting except to cut production. Many of the OPEC nations are seriously suffering with prices this low. At least half of the 12 OPEC nations have budgetary problems with anything under $90 and we are way under $90 today.

These low prices are going to be self perpetuating because the only way to make up that lost revenue is to produce more oil. They will be pumping every barrel they can to offset the revenue decline.

On the positive side Goldman Sachs claims every 25 cent decline in gasoline creates another 500,000 bpd of demand. With gas down from $3.31 to $2.70 today that is more than one million barrels of additional demand. It does not happen overnight because it takes a while for driving habits to change. Once they do the change will last for a long time even if prices begin to rise. American consumers are saving $630 million a day compared to the price they paid in June. That would equate to a $230 billion windfall if prices stayed at this level for a year.

Energy insiders, officers in energy companies, are buying stocks at a frantic pace. Time Rochford, co-founder of Ring Energy said "this is an absolute fire sale. It is an overreaction and stocks are oversold." He is one of 118 energy insiders that have purchased shares in their companies in November. Bloomberg said it was the biggest wave of insider buying since 2012. The number of insider buys has increased +64% from last November and more than doubled the average from the first ten months of 2014. Lowes Corp, a major shareholder in Diamond Offshore bought 1.18 million shares in November and another 410,000 shares last week. The CEO of Lowes said the selloff in the industry will allow Diamond to acquire assets at a cheaper price. "Hopefully this will allow Diamond to acquire rigs at a discount." The chairman of Chesapeake Energy bought 500,000 shares and the most since he joined the board in 2012.

Energy earnings are expected to drop -15% in Q4 for the worst performance of any S&P sector.

Markets

The rebound today was very telling. It is one thing to sell off -66 points on the Nasdaq but when it is followed by an +91 point rebound that tells you all you need to know about the market. Dip buyers are alive and well and they showed up in volume. Everyone worried about the December rally at 10:AM had a completely different view by 4:PM.

The Dow did not make it back to positive territory because of the losses in Verizon, Merck, McDonalds, Coke and AT&T. Their -7 point collective loss knocked more than 50 points off the Dow and that is exactly where it closed at -51.

The highlight of the day was the Russell 2000. The Russell dropped -10 points at the open then rebounded to close up +21. That is a rebound to be proud of. The motivational factor there was the small gain in crude prices or maybe I should say the lack of a drop. The majority of energy stocks posted decent gains and there are a lot of energy stocks in the Russell 2000.

The Russell is typically weak in late November and early December and then rallies into yearend. This index has vaulted back into the leading indicator position for the rest of December. If the Russell can push through that overhead resistance it will probably lead the big cap indexes for the rest of the year.

The S&P crashed below support at 2,050 at the open but surged back from the 2,034 low to close at 2,060. That +26 point rebound was just enough to get it back to the flat line for the day but remarkable nonetheless. The close back above support at 2,050 was a milestone event. The morning drop cleared a lot of stop losses and weak holders and the rebound was on strong volume. The 7.3 billion shares was the second highest volume since October 31st.

I view the morning drop as a knee jerk reaction to China and Greece and nothing to do with our market fundamentals. I still see 2,050 as support and 2,075 as resistance.

The Dow has been whipped around by individual stocks for the last week. The big caps are still strong but the individual stories are causing havoc. Unfortunately those stories eventually begin to mount up and can cause a change in market sentiment. We have had multiple warnings from Dow stocks and we are starting to hear more and more comments about the strong dollar and weak European economics weighing on earnings. Let's hope that does not turn into a tsunami as we move farther into the earnings warning season.

The Dow did not make it back to positive territory but it did manage to close back above 17,800. That is a sentiment win for the bulls. We have several weak levels of support in the 17,725 to 17,775 range so a close over the round number gives us something to fall back to without damaging the prior trend.

The Nasdaq, like the Russell, rebound strongly from the gap down open. There was no doubt about the tech stocks. Only 15 lost more than $2 with quite a few gaining more than that. Amazon, Google, Netflix and Apple all participated in the rebound and all sectors appeared to participate. The biotech sector was the black sheep with a few losers.

The gap down open did not reach critical support at 4,650 but it did break interim support at 4,725 for most of the morning. The rebound to 4,766 quickly reestablished that level as support again for tomorrow.

I view this rebound as very bullish for the rest of the week as long as that 4,725 level is not violated again. If future gains can move over Monday's resistance at 4,790 then I would expect us to finish the week a lot higher.

I felt really depressed at the open today. I had visions of Greece and EU problems coming back to haunt us again. Fortunately at this point I don't think investors are really interested in what happens to Greece.

The big drop in China was overdue. The markets had been going vertical for the last two weeks and China simply reacted to tone down the irrational exuberance. No harm, no foul but their market weakness could last for several more days.

I still believe the historical trend for a bullish December will hold despite the non historical drag of Europe, Japan and China. Money is flowing into the U.S. from those areas as evidenced by the strength of the bond market. We are the best house on a bad block and that should lift our markets for the rest of the year.

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New Plays

Best Year Ever

by James Brown

Stop Loss: 20.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 09, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 227 thousand
New Positions: Yes, see below

Why We Like It:
MDC Partners (MDCA) is a marketing firm. The company describes itself as
"one of the world's largest Business Transformation Organizations that utilizes technology, marketing communications, data analytics, insights and strategic consulting solutions to drive meaningful returns on Marketing and Communications Investments for multinational clients in the United States, Canada, Europe, Asia and Latin America."

After an incredible performance in 2013 where MDCA's stock rallied from $8 to $26 (+225%) this year has been a disappointment. That might be due to the company's earnings, which have been pretty hit or miss. On a longer-term perspective 2014 merely looks like a massive consolidation (see the weekly chart below).

The company's most recent earnings report was October 29th. They missed bottom estimates while beating the revenue number. The stock initially sold off but investors bought the dip and MDCA has been outperforming the market recently.

Miles Nadal is the Chairman and CEO. He commented on their Q3 performance saying,
"This was yet another strong quarter for our business, and it is shaping up to be another exceptionally strong year as we are on pace to deliver on all of our financial objectives. But what's most exciting is that we have established a solid foundation for what we believe will be an even better year in 2015... It's our continuing and unwavering belief that our organization is healthy, strong and strategically better positioned than all of our competition." Nadal also said, "2014 shaping up to be our best year to-date." Commenting on the Q3 results, "revenue increased 13% over the last year to nearly $327 million, with organic revenue a record 8.2%. Second, our adjusted EBITDA increased 8% to $42.5 million with margins of 13%... Nearly 8% of our revenue is now outside of North America, up from 6% a year ago. We continue to see robust organic growth in foreign markets up 30% per year."

It's worth noting that MDCA is a small cap stock and doesn't get a lot of analyst coverage. Yet investors seem to be bullish on it. The stock is up five weeks I a row and shares are up almost +30% from their October lows.

Technically shares are in breakout mode. They broke through the 200-dma, resistance near $22.50, and its long-term trend line of lower highs, all in the last few weeks.

Tonight we are suggesting a trigger to launch bullish positions at $23.55. However, I would consider this a slightly more aggressive trade. Investors may want to limit their position size to reduce risk.

In Play Updates and Reviews

Stocks Pare Their Losses

by James Brown

Editor's Note:
Traders continue to buy the dip and stocks pared their Tuesday morning losses by the closing bell.

STX did hit our stop loss.

Current Portfolio:

BULLISH Play Updates

Columbia Sportswear Co. - COLM - close: 44.49 change: +0.09

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: +10.5%
Entry on Novo:tember 06 at $40.25
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 138 thousand
New Positions: see below

Comments: 12/09/14:
COLM bounced at $43.70, keeping the trend of higher lows alive. Shares managed to close in positive territory. This stock appears to be building a neutral, pennant-shaped consolidation over the last couple of weeks. These patterns, with their high lows and lower highs, are supposed to be a neutral consolidation but more often than not the preceding trend continues, which would be up for shares of COLM.

I am not suggesting new positions.

Earlier Comments: November 5, 2014:
COLM has been consistently beating earnings expectations all year long. The company is part of the consumer goods sector.

According to a company press release, "Columbia Sportswear Company is a leader in the global outdoor and active lifestyle apparel, footwear, accessories and equipment industry. Founded in 1938 in Portland, Oregon, the company has assembled a portfolio of global brands whose products are sold in approximately 100 countries. In addition to the Columbia brand, Columbia Sportswear Company also owns the Mountain Hardwear, Sorel, prAna, Montrail and OutDry brands."

The trend of earnings in 2014 has been strong with COLM beating Wall Street's earnings estimates four quarters in a row and raising guidance three out of four quarters. Their most recent earnings report was October 30th.
Analysts were looking for a profit of $0.87 per share on revenues of $632.29 million. COLM delivered earnings growth of +20% to $0.93 a share. Revenues soared +29% to $675.3 million.

Management then raised their full year 2014 earnings and revenue guidance above analysts' estimates. COLM expects 2014 sales to hit $2.06 billion, which is +22% improvement above 2013. They also expect gross margins to rise 130 basis points from a year ago. COLM is guiding 2014 net income to rise +35% to $1.80 per share.

COLM's president and chief executive office, Tim Boyle, said they expect 2015 net sales to grow at a double-digit rate above their new 2014 estimate of $2.06 billion. They plan to hit mid-teen operating margins.

COLM appears to have strong sales momentum as we head into the crucial holiday shopping season. Retail analysts are expecting industry wide sales to be above average this year. Low gasoline prices provide a great tailwind for all the consumer goods companies.

Technically shares of COLM found support near $34-35 dating back to their prior highs (see the long-term chart below). The rebound has accelerated thanks to the company's earnings report and bullish guidance. Now COLMN is breaking out past resistance at $40.00 and its simple 200-dma.
We are suggesting a trigger to open bullish positions at $40.25.

Stop Loss: 33.85
Target(s): To Be Determined
Current Option Gain/Loss: + 1.1%
Entry on November 18 at $35.65
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 247 thousand
New Positions: see below

Comments: 12/09/14:
The rebound in CUDA continues. As expected the stock is encountering resistance near $36.00. A breakout past this area would be bullish. If shares manage to close above $36.35 I would be tempted to launch new bullish positions.

Earlier Comments: November 15, 2014:
CUDA is part of the technology sector. This is a small cap company in the cloud computing space.
According to the website, "Barracuda provides cloud-connected security and storage solutions that simplify IT. These powerful, easy-to-use and affordable solutions are trusted by more than 150,000 organizations worldwide and are delivered in appliance, virtual appliance, cloud and hybrid deployments. Barracuda's customer-centric business model focuses on delivering high-value, subscription-based IT solutions that provide end-to-end network and data security."

CUDA has only been a public company for little more than a year. Lately they have been on a roll with their earnings reports. CUDA has beaten Wall Street's estimates on both the top and bottom line four quarters in a row. The last two reports also included bullish guidance.

CUDA's most recent report was October 9th when they reported their Q2 results. Analysts were expecting a profit of $0.04 a share on revenues of $66.7 million. CUDA delivered a big beat with a profit of $0.8 on revenue growth of +18.9% to $68.7 million.

Management said their active subscribers grew +18% and their renewal rate was 96.5%. Their Next Generation Firewall solutions saw sales up +50% in the quarter. CUDA said sales were up across all geographically regions. Plus their gross margins were strong with an improvement to 81.7%. That's above the prior quarter's 80.4% and the year ago period 79.8%.

CUDA's guidance was bullish. Their Q3 estimates are for revenues in the $69-70 million range versus Wall Street's $69 million estimate. They expect a profit in the $0.04-0.05 zone compared to estimates of only $0.03.
They raised their 2015 revenue guidance above their prior estimates but this was slightly below Wall Street's estimate. They also raised their 2015 earnings growth into the $0.22-0.24 range compared to analysts' consensus estimates of only $0.17.

Technically the stock has been soaring from its double bottom in the $24.00 area. The point & figure chart is bullish and forecasting a long-term target of $56.00. Right now CUDA is testing resistance in the $35.00 area. A breakout here could spark some short covering. The most recent data listed short interest at 9.7% of the very, very small 9.9 million share float.

Stop Loss: 25.90
Target(s): To Be Determined
Current Option Gain/Loss: +14.1%
Entry on November 12 at $26.25
Listed on November 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 201 thousand
New Positions: see below

Comments: 12/09/14:
CYNO ricocheted off support near $28.00 this morning and soared to a +3.5% gain. The $30.00 mark is potential round-number resistance so a breakout here would be encouraging.

I am not suggesting new positions at this time.

Earlier Comments: November 11, 2014:
CYNO is in the healthcare sector. The company is part of the medical equipment industry. According to a company press release, "Cynosure designs, manufactures and markets medical devices for aesthetic procedures and precision surgical applications worldwide that enable plastic surgeons, dermatologists and other medical practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular and benign pigmented lesions, remove multi-colored tattoos, revitalize the skin, liquefy and remove unwanted fat through laser lipolysis, reduce cellulite, clear nails infected by toe fungus and ablate sweat glands."

Their flagship product is the PicoSure laser workstation, designed to remove tattoos. This laser technology produces ultra-short bursts of energy to the skin in trillionths of a second. The company recently gained FDA approval to use their PicoSure system to treat acne scars and wrinkles.

CYNO's earnings results have been mixed. Their Q1 report back in May missed estimates by four cents even though revenues were up +52% from a year ago. The stock sold off on this report. They followed that with a Q2 report in July that beat estimates as revenues soared +45% from a year ago.
Growth slowed a bit in their latest report in October.

Analysts were expecting 25 cents a share on revenues of $70 million. CYNO met expectations on the bottom line while the top line grew +18% to $71.5 million.

CYNO's Chairman and CEO Michael Davin commented on the quarter saying,
"Cynosure delivered record third-quarter revenue of $71.5 million, up 18 percent year-over-year as revenue in each of our direct sales channels improved from the same period in 2013. North American laser revenue increased 17 percent, revenue from our Asia Pacific subsidiaries rose 46 percent, while our European direct sales channel was up 7 percent. Product and technology innovation, expanded indications and new international marketing clearances continue to drive favorable results for the Company."

Discussing his company's outlook Davin said, "We are on schedule to launch our next flagship platform in 2015 for non-invasive fat removal, and we believe this large addressable market represents a significant growth opportunity for the Company."

Technically shares have broken out from a six-month consolidation in the $19-24 range. The rally following its October earnings report lifted CYNO above key resistance at $24.00 and its 200-dma. Shares have already retested this level as support and now the stock is breaking out to multi-month highs. The point & figure chart is bullish with a $31.50 target.

Tonight I am suggesting small bullish positions if CYNO can trade at $26.25. We want to keep our position size small to limit our risk.

Stop Loss: 44.85
Target(s): To Be Determined
Current Option Gain/Loss: + 9.2%
Entry on November 17 at $41.75
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.7 million
New Positions: see below

Comments: 12/09/14:
EA almost hit our stop loss today. Shares found support near $45.00 but the intraday low was $44.95. Our stop is at $44.85.

I am not suggesting new positions at this time.

Earlier Comments: November 13, 2014:
EA is considered part of the technology sector. More broadly they are part of the entertainment industry. Previously EA was the biggest video game company on the planet but when Activision merged with Blizzard they stole the top spot. It remains a fight. EA has annual revenues of $4.1 billion while AVTI has annual revenues around $4.35 billion.

According to a company press release, "Electronic Arts (EA) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims, Madden NFL, EA SPORTS, FIFA, Battlefield, Dragon Age, and Plants vs. Zombies."

Video games are big business. Microsoft (MSFT) has sold more than 83 million Xbox 360s. Rival Sony (SNE) has sold more than 80 million PlayStation 3s. Meanwhile, another company, Steam, is the biggest online retailer for downloadable PC games and has over 75 million users. Back in 2012 the global video game market was $78 billion. That grew to $93 billion in 2013. Research firm Gartner estimates that global video game sales (all formats) could hit $111 billion by 2015. In comparison the global movie box office is only about $38 billion in 2014.

EA continues to fight for market share and dominance in the gaming industry and they've seen success in 2014. The company has beaten Wall Street's earnings estimates on both the top and bottom line three quarters in a row. Their most recent quarterly report was October 28th. Analysts were expecting a profit of $0.53 a share on revenues of $1.16 billion. EA blew those numbers away with a profit of $0.73 and revenues up +17% to $1.22 billion. Gross margins surged thanks to rising digital sales. Mobile sales were also up strongly and in-game purchases soared.

EA offered bullish guidance for both their December quarter (EA's Q3) and their fiscal year 2015. The company raised their Q3 guidance to $0.90, which was above analysts' estimates. They also raised their 2015 guidance to $2.05, which is above Wall Street's estimate.

The stock reacted by soaring to new highs in late October. Since then shares of EA have been consolidating sideways in the $40-41 zone. It looks like that consolidation could be over with EA breaking out to new highs today. The Point & Figure chart is bullish and forecasting a long-term target of $60.00.

Analysts are expecting a strong holiday shopping season this year. The big drop in oil and thus gasoline prices is giving consumers a little extra spending money. The National Retail Federation is forecasting sales growth of +4.1% versus the normal 10-year average of +2.9%. That's a very broad retail outlook. It could be even stronger for video games this year.

Tonight we are suggesting a trigger to open bullish positions at $41.75.

Stop Loss: 54.85
Target(s): To Be Determined
Current Option Gain/Loss: + 8.9%
Entry on November 25 at $53.25
Listed on November 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: see below

Comments: 12/09/14:
Traders quickly bought the dip in ISIS this morning. Shares outperformed the market again by closing up +1.75%. The stock is nearing what could be potential psychological resistance at the $60.00 mark.

I am not suggesting new positions. We will try and protect ourselves by moving the stop loss up to $54.85.

Earlier Comments: November 24, 2014:
ISIS is part of the healthcare sector. They operate in the biotech space. Biotech stocks have been crushing the market this year. The BTK biotech index is up +43.4% year to date. ISIS is only up +2.2% but it has come a long way from its May 2014 lows near $22.25. The last seven months have produced a +135% rally.

According to a company press release, "Isis is exploiting its leadership position in antisense technology to discover and develop novel drugs for its product pipeline and for its partners. Isis' broad pipeline consists of 34 drugs to treat a wide variety of diseases with an emphasis on cardiovascular, metabolic, severe and rare diseases, including neurological disorders, and cancer.

Isis' partner, Genzyme, is commercializing Isis' lead product, KYNAMRO, in the United States and other countries for the treatment of patients with homozygous FH. Isis has numerous drugs in Phase 3 development in severe and rare and cardiovascular diseases. These include a novel triglyceride lowering drug, ISIS-APOCIIIRx, for patients with familial chylomicronemia syndrome; ISIS-TTRRx, which Isis is developing with GSK to treat patients with the polyneuropathy form of TTR amyloidosis; and, ISIS-SMNRx, which Isis is developing with Biogen Idec to treat infants and children with spinal muscular atrophy, a severe and rare neuromuscular disease. Isis' patents provide strong and extensive protection for its drugs and technology."

Part of the challenge with biotech stocks is their volatility. Biotechs can be extremely sensitive to any headline. The right or wrong headline about an FDA approval or clinical trial results can send a biotech stock soaring or crashing in a heartbeat.

Another challenge is earnings. Many of the smaller biotech names suffer from very lumpy earnings based on milestone payments by partners. For example, last quarter ISIS saw their quarterly revenues soar almost +90% yet they still missed Wall Street revenue estimate.

Most bulls on this stock will point to the company's pipeline. ISIS has a very broad pipeline so it's not just a one-trick pony. You can view their current pipeline here on this webpage:
ISIS pipeline.

The stock has been stair-stepping higher with investors buying the dips as prior resistance acts as new support. Last week the stock garnered a new price target upgrade to $62.00. ISIS will also present at a couple of analyst conferences in early December that might offer more catalysts to keep the rally going. The big bounce from its 2014 lows has produced a huge buy signal on the Point & Figure chart that is projecting a long-term target of $73.00.

More aggressive investors may want to open bullish positions now. I am suggesting we wait for a rally past the November high ($53.12) and use a trigger to open positions at $53.25.

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: + 1.6%
Entry on November 24 at $35.10
Listed on November 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 24.8 million
New Positions: see below

Comments: 12/09/14:
MU gapped open lower at $34.85 and then spiked down to $34.54 but the weakness didn't last long before traders started buying the dip. If the bounce continues I would be tempted to launch new positions on a rally past $36.10.

More conservative investors may want to start raising their stop loss.

Earlier Comments: November 22, 2014:
MU is in the technology sector. The company is part of the semiconductor industry. They make memory chips.
According to a company press release, "Micron Technology, Inc., is a global leader in advanced semiconductor systems. Micron's broad portfolio of high-performance memory technologiesâ€”including DRAM, NAND and NOR Flashâ€”is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of technology leadership, Micron's memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications."

The semiconductor space has been a strong performer this year with the SOX semiconductor index up +23.9% in 2014. That outperforms the NASDAQ's +12.8% and the S&P 500's +11.6% gain. MU is beating all of them with a +57.7% rally in 2014.

The company has been beating Wall Street's earnings and revenue estimates all year long. Their most recent report was MU's Q4 results that came out in September. Analysts expected a profit of $0.81 on revenues of $4.15 billion. MU delivered $0.82 as revenues soared +48.7% to $4.23 billion.

Management then raised their Q1 revenue guidance into the $4.45-4.70 billion range, which was above analysts' estimates. They also announced at $1 billion stock buy back program.
Following its results and the buy back news the stock has seen several price target upgrades. Many brokers have price targets in the low to mid $40s. One firm has a $60 target.

Technically shares have been stuck under resistance in the $34.85 area since July. A rally past $35.00 would create a new buy signal on MU's point & figure chart.
Tonight I am suggesting a trigger to open bullish positions at $35.10.

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: +1.3%
Entry on December 09 at $41.05
Listed on December 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.1 million
New Positions: see below

Comments: 12/09/14:
Our new play on SEE is off to a good start. Traders quickly bought the dip near support at $40.00 and shares outperformed the market with a +1.8% gain on the session. Our trigger to open bullish positions was hit at $41.05.

Earlier Comments: December 8, 2014:
SEE is part of the consumer goods sector. They're in the packaging and containers industry. The company describes itself as "Sealed Air is a global leader in food safety and security, facility hygiene and product protection. With widely recognized and inventive brands such as Bubble Wrap brand cushioning, Cryovac brand food packaging solutions and Diversey brand cleaning and hygiene solutions, Sealed Air offers efficient and sustainable solutions that create business value for customers, enhance the quality of life for consumers and provide a cleaner and healthier environment for future generations. On a pro forma basis, Sealed Air generated revenue of $8.1 billion in 2011 and has approximately 26,300 employees who serve customers in 175 countries."

The U.S. economy is improving and that should mean a strong tailwind for SEE. The company has seen earnings growth improve. The last two quarters in a row SEE has beaten Wall Street's estimates on both the top and bottom. If that wasn't good enough they also raised their guidance two quarters in a row.

SEE's most recent earnings report was October 29th. Analysts were expecting a profit of $0.45 a share on revenues of $1.94 billion. SEE said earnings were up +24% from a year ago to $0.52 a share. Revenues rose +3.3% to $1.98 billion.

Jerome A. Peribere, President and Chief Executive Officer of SEE commented on their quarterly performance. He said, "Our financial and operational performance in the third quarter exceeded our expectations across all key metrics. Net sales increased 3.6% on a constant dollar basis, Adjusted EBITDA margin surpassed 15%, and Adjusted EPS increased 24%. Adjusted gross profit margin increased 120 basis points as a result of our continued disciplines and value-added selling approach across all regions and divisions. Despite macro-economic uncertainties, currency headwinds and volume declines in the North American protein market, we are increasing our 2014 outlook for Adjusted EBITDA and Adjusted EPS and expect to generate approximately $540 million in free cash flow."

SEE's new 2014 guidance is $1.70-1.75 a share versus Wall Street's $1.65-1.70 estimate. The stock has been strong following this report. Instead of correcting lower in mid November SEE merely consolidated sideways. Now it's rested and ready to run. Shares are up five days in a row and ignored the market-wide weakness today.

Today's intraday high was $40.87. I am suggesting a trigger at $41.05 to open bullish positions. We're not setting a target tonight but I will note the point & figure chart is forecasting a long-term target of $61.00.

Stop Loss: 29.70
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 991 thousand
New Positions: Yes, see below

Comments: 12/09/14:
Hmm... VEEV managed to outperform the major indices with a +0.6% gain today. I don't find today's performance that inspiring. We will wait to see if shares can build on today's strength tomorrow before potentially making any changes to our entry strategy.

Currently our suggested entry point for bullish positions is $32.05.

Earlier Comments: December 4, 2014:
Wall Street loves a growth stock and this company is growing quickly.

VEEV is in the technology sector. They're part of the healthcare information technology industry. A company press release describes Veeva Systems Inc. as "a leader in cloud-based software for the global life sciences industry. Committed to innovation, product excellence, and customer success, Veeva has more than 200 customers, ranging from the world's largest pharmaceutical companies to emerging biotechs. Veeva is headquartered in the San Francisco Bay Area, with offices in Europe, Asia, and Latin America."

The company held its IPO in 2013 and shares priced at $20.00 and traded up to $49.00 four days later. The next eight months were painful as VEEV's stock drifted down to the $17.50 area. Fortunately shares have reversed thanks in large part to VEEV's earnings.

The company has beaten Wall Street's estimates on both the top and bottom line and guided higher the last three quarters in a row. Their most recent report was November 25th. Analysts were expecting a profit of $0.08 per share on revenues of $78.97 million. VEEV reported a profit of $0.09 while revenues soared +52.4% from a year ago to $83.8 million. They said their subscription service revenues in the third quarter rose +58% from a year ago. Their third quarter operating income doubled from $10.0 million to $19.9 million.

VEEV's management raised their Q4 guidance on both the top and bottom line. The stock soared the next day (Nov. 26th) and hit new eight month highs. Shares have since corrected but investors are buying the dip near support in the $30 area. Further gains could spark some serious short covering. Depending on the source, current short interest is between 22% and 55% of the relatively small 37.1 million share float.

This stock is volatile so I am suggesting investors limit their position size to reduce risk. Tonight we are suggesting a trigger to open bullish positions at $32.05.

Trigger @ $32.05

- Suggested Positions -

Buy VEEV stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the JAN $32 CALL (VEEV150117c32)

Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Voxeljet AG - VJET - close: 8.45 change: -0.13

Stop Loss: 9.65
Target(s): To Be Determined
Current Gain/Loss: +14.6%
Entry on December 04 at $ 9.90
Listed on December 01, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 372 thousand
New Positions: see below

Comments: 12/09/14:
VJET slipped to new record lows before paring its loss to just -1.5%.

I am not suggesting new positions at the moment.

Earlier Comments: December 2, 2014:
VJET is in the technology sector. The company is part of the 3D printer industry. A company press release describes VJET as "a leading provider of high-speed, large-format 3D printers and on-demand parts services to industrial and commercial customers. The Company's 3D printers employ a powder binding, additive manufacturing technology to produce parts using various material sets, which consist of particulate materials and proprietary chemical binding agents. The Company provides its 3D printers and on-demand parts services to industrial and commercial customers serving the automotive, aerospace, film and entertainment, art and architecture, engineering and consumer product end markets."

Unfortunately this industry has been struggling. Q3 earnings results were disappointing almost across the board with 3D printing companies either posting earnings misses, lowering guidance, or both. VJET happens to fall in the both category.

VJET reported its Q3 results on November 13th. Analysts were expecting a loss of €0.03 for the quarter. The actual results were significantly worse with VJET reporting a loss of €0.41.
That compares to a profit of €0.11 in Q3 2013.
Management lowered their guidance following the Q3 earnings report.

The industry is facing a new competition in printer giant Hewlett-Packard (HPQ). Everyone knew that HPQ would eventually jump into the 3D printer market and HPQ has finally announced they will next year. HPQ recently gave a presentation saying their 3D printer technology will use "multi-jet fusion" which will generate speeds 10 times faster than current 3D printers.

Shares of VJET have been underperforming the market with a bearish trend of lower highs and lower lows. The point & figure chart is bearish and forecasting at $6.00 target.

Today VJET is setting at all-time lows and poised to break what should be round-number, psychological support at the $10.00 mark. Tonight we are suggesting a trigger to open bearish positions at $9.90.

Please note I do consider this a more aggressive, higher-risk trade. There is already a lot of short interest in this name. The most recent data listed short interest at 22% of the very small 12.4 million share float. That poses the risk of a short squeeze should VJET ever bounce. You may want to use put options to limit your risk to the cost of the option.

Stop Loss: 27.30
Target(s): To Be Determined
Current Option Gain/Loss: - 2.2%
Entry on December 08 at $25.90
Listed on December 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: see below

Comments: 12/09/14:
Caution! ZU closed unchanged on the session. Considering the market's drop this morning I would have expected ZU to show some relative weakness. Today's intraday low was $25.62 on the initial spike down. Traders may want to wait for a new relative low before considering new positions.

Earlier Comments: December 6, 2014:
ZU is in the services sector. They're considered part of the discount variety store industry. Yet the company doesn't have any retail locations. Instead they operate online. ZU focuses on the "flash sales" model with 72 hour sales (and occasionally 24 hour sales).

The website describes the company as follows, "zulily (http://www.zulily.com) is a retailer obsessed with bringing moms special finds every dayâ€”all at incredible prices. We feature an always-fresh curated collection for the whole family, including clothing, home decor, toys, gifts and more. Unique products from up-and-coming brands are featured alongside favorites from top brands, giving customers something new to discover each morning. zulily was launched in 2010 and is headquartered in Seattle with offices in Reno, Columbus and London."

If you do any research on ZU you'll hear a lot about the business model. It makes sense. The company doesn't suffering from all the hassles and expenses of normal retail locations. The constantly rotating nature of their flash sales model generates a sense of urgency for the buyer. It seems like a great idea. The last couple of earnings reports have been better than Wall Street expected. Yet the stock is getting crushed.

ZU's most recent report was their Q3 results on November 4th. Wall Street was expecting ZU to lose between 3 to 4 cents per share on revenues of $285.4 million. ZU reported a profit of $0.02, which is up from $0.00 a year ago. Revenues soared +71.5% to $285.8 million.

Management said it was a good quarter for ZU. Darrell Cavens, CEO of zulily, said, "This was a strong quarter where we hit several key milestonesâ€” the business reached a billion dollars in revenue on a trailing 12 month basis and the majority of our North American orders now come from mobile." They also saw their active customers surge +72% from a year ago to 4.5 million. Their average purchase was up +4%. In spite of all the good news the stock plunged -20% the next day.

The reason appears to be guidance and valuations. ZU issued Q4 guidance, the critical holiday shopping season, that was below analysts' estimates. Another major issue is valuation. At current prices ZU is still valued at $2 billion for a company with a net income of only $11.5 million. Their current P/E is about 202. They do seem to be growing rapidly but evidently not enough to justify current valuations.

Eventually shares will get cheap enough that the selling stops. Where that bottom is no one knows yet. The point & figure chart is bearish and forecasting at $14.00 target. There are a lot of investors betting on new lows. The latest data listed short interest at 31% of the 41.7 million share float.

We think ZU heads lower but I consider this a more aggressive, higher-risk trade. The big short interest could make ZU volatile. Tonight we're suggesting small bearish positions if ZU can trade at $25.90. You may want to use the put options to limit your risk.

Stop Loss: 64.85
Target(s): To Be Determined
Current Option Gain/Loss: - 2.5%
Entry on November 21 at $66.52
Listed on November 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: see below

Comments: 12/09/14:
The stock market's widespread weakness on Tuesday morning sent shares of STX to new two-week lows. The stock traded below what should have been support at $65.00 and hit our stop at $64.85.

Our trade is closed but I would keep an eye on STX. A correction into the $60-61 zone might be a new bullish entry point.